Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
The market retraced early strength linked to the API report from Thursday afternoon showing a larger than expected decline in US inventory levels. This was confirmed by the DOE report this morning, but prices instead reacted to signs of a softening employment picture in the US and a sharp decline in German import levels that raised concerns over the world economy and global oil demand, limiting gains in response to the inventory report. WTI settled 47 cents higher at 81.12 while gasoline was up 1.06, but ULSD closed lower by 10.67 cents on talk of higher diesel shipments from China due to favorable margins and an increase in US inventories.
The DOE report showed commercial crude inventories fell by 10 mb. Crude stocks at Cushing totaled 29.2 mb compared to 30.7 last week. Gasoline stocks fell by .2 mb while distillate built by 1.2. Total stocks of products and crude fell by 7.4 mb and stand at 1,604.3 mb compared to 1,663 a year ago. Refinery utilization dropped 1.2 to 93.3 percent. Net import levels for crude totaled 2.1 mb/d with the daily average so far this year at 2.4 mb/d against 3.1 last year. Total Exports of crude and products were at 1.7 mb/d compared to 1.3 last year, with a 2023 average of 1.7 mb/d compared to .6 mb/d last year. Products supplied totaled 21.4 compared to 21.3 mb/d last year with gasoline disappearance at 9.1 mb/d and distillate at 3.7.
Lackluster economic activity in Europe and Asia and uncertainty over future Fed policy is providing resistance to the market with caution evident ahead of the Chinese PMI data to be released late this evening. The poor import levels in Germany suggests continued weakness in Chinese exports persists. Potential for an extension of the voluntary output cut by Saudi Arabia is providing underlying support on setbacks but the recovery in production from other OPEC+ producers and in particular Iran continues to soften its impact as the market assesses a possible decline in global stocks during the fourth quarter. A further cut will help absorb additional supplies from Iran and possibly Iraq, where talks with Turkey on shipping oil from the Kurdistan region are progressing and could allow for the export of an additional 450 tb/d.
The double bottom from Wednesday and Thursday near 77.60 marks initial support, with a move below that level targeting 76.00. Resistance rests near 84.00 basis October.
Natural Gas
After trading sideways yesterday the market pushed higher today, registering a gain of 13.4 cents to settle at 2.796 basis October. The strength was surprising given the path of hurricane Idalia and its landfall early in this mornings session. A drop in production seen over the last two days underpinned the market, as a small number of platforms evacuated in the Gulf were responsible for a portion of the decrease. A move near 13 bcf/d on LNG flows also supported sentiment, while early reports of smaller than expected power outages in Florida added upside bias. As expected, Monday’s spike higher cleared out resistance as the market had little trouble retesting the 2.80 area. The strong close now targets the July highs near 2.87, with potential to test the psychological 3 dollar level if momentum carries through. The 9 and 100-day moving averages in the 2.68-2.69 range now marks initial support. Tomorrow’s weekly storage report is expected to show a 25 bcf injection compared to the 5-year average build of 51.
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM. The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.
